Basis Points to Dollars, Instantly

Question

Your desk improves the fill on a 45 million order by 7 basis points. How many dollars did that save? Give the one-step rule that converts any basis-point figure on any notional.

Accepted Answer

Shift-four rule: a basis point is 10^-4 of notional, so slide the notional's decimal point four places left to price one bp, then multiply by the bp count. One bp on 45,000,000: shift four places, 4,500. Then 7 text bp = 7 times 4500 = mathbf31,500. The trader's cached form: 1 bp on 1 million is 100. So textdollars = textbp times textmillions of notional times 100, here 7 times 45 times 100 = 31,500, three small numbers instead of one seven-digit monster. The factoring works because the 10^-4 from the bp and the 10^6 from "million" collapse into a single times 100. Sanity anchor for direction: 100 bp = 1%. So a 25 bp fee on 8M should be a quarter of 1% of 8M, a quarter of 80,000, which is 20,000, and the rule agrees: 25 times 8 times 100 = 20,000. Running this 100-bp cross-check once is the cheapest insurance against being off by a factor of ten in front of an interviewer. Drill: 3 bp on 12M = 3 times 12 times 100 = 3,600; 1.5 bp on 250M = 1.5 times 250 times 100 = 37,500; 25 bp on 8M = 20,000. Spread capture, fee schedules, and slippage all get quoted in bps while P&L lands in dollars, so this conversion runs dozens of times a day on a desk. Candidates who price the single bp firs

Basis Points to Dollars, Instantly

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